SegWit, short for Segregated Witness, is a system that makes your Bitcoin transactions faster.

Why do we need SegWit?

Think of a single lane highway with 5,000 vehicles driving along smoothly. As traffic builds to 50,000 and more, that single lane becomes clogged forcing you to wait hours on end in congested traffic and maybe miss your appointment. That’s Bitcoin. It’s called the scalability problem, and it’s an issue that the smartest blockchain developers have been trying to find solutions to for years.

SegWit is the Bitcoin team’s solution.

The scalability problem

One of Bitcoin’s most aggravating issues is its lack of speed. Ten transactions take about a second on average to process. Compare that to payment companies like Visa that are able to process around 5,000 to 8,000 transactions per second.

Pay more and you can get yours to the front of the queue, but that makes Bitcoin an expensive and undemocratic system. Besides which, Bitcoin wants to make its platform as efficient and as whizzingly fast as the internet to retain its users and grow its appeal.

The SegWit solution

Bitcoin transactions are made up of blocks with each block able to absorb no more than 1MB of data.

The blocks come in two parts: a header and a body. The header stores a cryptographic hash of the previous block, along with a time signature and other data. The body stores the transactions, including sender data and receiver public keys, which shows you this is a legitimate transaction. Each part takes up room and increases the mass of the block. The signature part alone that is needed to validate the information takes up around 60 percent of its bulk.

In October 2016, Pieter Wuille, co-founder of Blockstream and a Bitcoin Core developer decided to hack of the signature part and put it in a separate block.

Model: Structure of Segregated Witness

This block, called the “witness” block is separate to Bitcoin’s original block. We now have more room in our core block to slip in more information.  The block becomes lighter, so Peter’s idea also helps Bitcoin transactions move more efficiently.

In essence, Bitcoin added a parallel lane to its highway to divert some of its traffic from Route A (call it that) to Route B. Route A has the blocks with sender and receiver data, while the new parallel lane contains the “witness” segment with the scripts and signatures.

Result? The highway is less congested. Your Bitcoin transactions slip through faster.

Other benefits

  • Node performance – The Bitcoin platform is less congested, so nodes can verify blocks, or transactions, faster.
  • Cheaper transactions – At one time, increased demand raised fees. Now, Bitcoin can reduce its fees.
  • Transaction malleability – Originally, the sender’s signature, or the transaction id (txid), was vulnerable to an intruder hacking and changing it and, thereby, hacking the transaction. By SegWit moving the signature from the transaction data to another “lane”, it protects your transaction data from being hacked. 
  • Linear scaling of signature hashing operations – For certain transactions, adding more data, expands the amount of time that each signature needs to be verified. Segwit resolves this by changing the calculation of the transaction hash for signatures so that each byte of a transaction only needs to be hashed no more than twice.
  • Increased security for multi-signature transactions – SegWit provides two different scripts; one to a single public key that is vulnerable to hacking (and therefore to payments being stolen) and another that directs payments to a script hash. This boosts security for multi-signature transactions.
  • Building on top – SegWit frees Bitcoin for the development of second layer protocols, like its lightning network. SegWit activation also boosted development work on other features such as MAST (which enables more complex bitcoin smart contracts), Schnorr signatures (which would enable another transaction capacity boost) and TumbleBit (an anonymous top-layer network).
  • Protects Lightning Network – SegWit is great for payment channels like the Lightning Network (LN), where a vulnerable signature originally prevented more people from using it to remit Bitcoin. 

Where is SegWit now?

In August 2017, Bitcoin finally integrated SegWit into its system. SegWit is called a “soft fork” which means it is compatible with Bitcoin’s old code, minimalizing the hassle to make SegWit work. A hard fork, in contrast, is a system that is so totally incompatible with the old that a separate blockchain and currency is needed to make it work. 

In SegWit’s case, all the system needed was 95 percent of Bitcoin miners to accept the changes, which happened in less than a year.

In 2017, Bitcoin came out with a controversial hard fork SegWit 2x which increased block sizes from 1 MB to 2 MB. Most of the crypto community resisted SegWit 2x due to its ambitious changes. Consequently, the hard fork was canceled only a week before it was scheduled to occur.

What are the main problems with SegWit?

For one, miners and mining pool operators dislike SegWit. Transactions that go through Lightning Network are in a separate channel (i.e., the parallel “line”), which means these transaction fees will not flow to miners.

Some Bitcoin services – like Bitcoin wallets – have been slow to support the SegWit changes. In February 2018, only 14% of Bitcoin transactions were made using SegWit Bitcoin. The numbers have improved since then, but the network is still in the woods.

Critics complain that SegWit doesn’t go far enough to solve the scalability problem. They maintain that only major changes to the Bitcoin platform and to the way Bitcoin handles transactions can decongest transaction flow.

Finally, SegWit has caused divisions in the bitcoin community leading to several hard forks, such as Bitcoin Cash (BCH).

Cryptocurrency

Bet your bottom dollar, you’ll want to keep a clear account of your cryptocurrency income.

In its recent IR-2018-71, the IRS warned that virtual currency transactions are taxable by law and that people who fail to report their cryptocurrency income, file cryptocurrency late, or file crypto taxes improperly may incur penalties and interest.  

When the IRS speaks, you should notice!

Which accounting model should you use?

You may think that virtual currency is a digital asset and, therefore, should be recorded as such, but since cryptocurrency has no status as legal tender, the IRS requires us to treat it as a property transaction.

Among other things, this means that cryptocurrency investments are bundled under short and long-term capital gains. The amount of tax you pay depends on how long you hold your cryptocurrency.

Thus:

  • Short-term capital gains:  If you hold Bitcoin or another cryptocurrency for less than a year, you’ll be paying regular income tax as with regular property tax. This is anywhere from 10 to 37 percent of your cryptocurrency income depending on your income level.
  • Long-term capital gains: If you hoard your cryptocurrency for longer than a year, you’ll pay long-term capital gains tax, which caps at 20 percent of your cryptocurrency income.

The crazy implication of this plan is that the longer you sit on your Bitcoin, the fewer taxes you pay – which is more reason to “hodl” your currency.

7 other IRS implications and rules

  • Payment made using virtual currency has to be reported using the same rules as any other payment made in property. This means the taxpayer who receives virtual currency as payment for goods or services reports how much that digital currency was in USD on the date that cryptocurrency was received. All transactions are converted to and reported in U.S. Dollars.
  • Payment made to an independent contractor, or freelancer, of $600 USD or more has to be reported on Form 1099-MISC using the fair market value of the virtual currency in U.S. Dollars of the date of payment.
  • As with all property tax, it is the payee, not the payor, who deducts tax. For that reason, the payor must ask the independent contractor for a  taxpayer identification number (TIN) and can only pay his worker once that is received.
  • Gain or loss depends on whether the virtual currency is a capital asset, like stocks, bonds, and other investment property. If it is merely a utility token, i.e., a token used by ICOs to operate their system, there’s no tax. Tax only incurs on virtual currency that can be converted to USD, Euros or other money, namely if the coin has economic value. The IRS refers to this kind of cryptocurrency as “convertible virtual currency”.
  • Someone who mines virtual currency needs to report the exchange value of any income received from that mining in USD. He uses that current exchange value on the day his income was received. Income is reported on either an IRS Form W-2 or an IRS Form 1099, depending on whether the miner works for himself or others.
  • Wages paid in cryptocurrency are reported by an employer on a Form W-2.
  • Wages using virtual currency to independent contractors and freelancers are taxable and the regular self-employment tax rules apply. Payers must issue Form 1099.


    Foreign Asset Reporting Requirements

If you have more than 10,000 bitcoins in a non-US/ offshore account, use the following forms to report your stash:

Donating Helps you Save

Make some Bitcoin, Ether, or Dash donations to some non-profit charity, and you may be able to see some deductions on your taxes as well as avoid tax on your gains. This applies only to cryptocurrency that has recognizable value.

Cryptocurrency Amendments since Jan. 1, 2018

  • No More Like-for-Like loophole

Like-for-like allows you to swap one item for a similar one within a certain time period (typically 180 days), so you may be able to avoid taxes. Since the IRS pegs cryptocurrency as property, and since property investors use the like-for-like loophole for assets like real estate, art, or racehorses, you’d think we’d have this loophole for Bitcoin too.  The loophole existed until the current administration did away with it in January 2018. 

  • No more Cryptocurrency Tax Fairness Act

Before the Trump administration, there was a Cryptocurrency Tax Fairness Act (CFTA) that waived tax from cryptocurrency transactions under $600.  So, say, you used Bitcoin to buy a cup of coffee, you didn’t need to add tax to that Bitcoin transaction. The new tax rules added tax to every itty-bitty purchase – that cup of coffee too.

Bonus: 3 cryptocurrency tax resources

  • Coinbase – A free tool for calculating cryptocurrency taxes that, more or less, works as long as you use it for simple hoarding, rather than trading, and as long as you stash your cryptocurrency with Coinbase. (Warning: The moment you send your coins to an external wallet or another site, Coinbase may inaccurately report these transactions as “sales”).
  • BitcoinTax – There’s a free version for transactions done by any cryptocurrency, as long as the transactions are simple and deal with small amounts, For unlimited and more complex transactions, BitcoinTax offers a 19.95 version per tax year.  This option is your closest to a qualified accountant and may be valuable if you trade in cryptocurrency.
  • Bitcoin Tax Attorneys, CPAs, and Accountants – For complex trading and accounts, you’ll likely want a qualified tax attorney, CPA or tax accountant who knows Bitcoin and digital currencies. That’s where the Directory of Bitcoin Tax Professionals helps you.

 

 

Headquartered in Kiev, Liqui is a crypto-only cryptocurrency exchange with a 235 trading pairs. Liqui offers both a public and private API for programmatic trading and states a 24-hour volume of around 1250 BTC. Liqui’s numerous trading pairs are all against its three main currencies, BTC, ETH, and USDT, meaning that those looking to trade with fiat will want to find a different exchange or a method of converting their crypto after the fact. Overall, It is a good choice for small to medium traders, especially those looking for the ability to trade programmatically against a large number of cryptocurrencies.

Liqui finds itself at #23 on BlockExplorer’s list of the top 25 cryptocurrency exchanges of 2017.

Liqui

liqui cryptoURL: liqui.io
Launched: 2016
Trading pairs: 235
Deposit Fees: No
Withdrawal Fees: No
Trading fees: Yes
Verification: Yes
Margin Trading: No (coming soon)

Fees and Limits

Liqui lays out its fees in the usual maker/taker scheme, where makers pay a 0.10% fee and takers pay a 0.25% fee. All of Liqui’s trading pairs currently have the same fees applied to them. Fees are listed on Liqui’s Fees and Limits page, with the fees specifically only listed for the three ‘main’ cryptocurrencies you trade against; Bitcoin, Ethereum, and USD Tether.

Limit-wise, Liqui has three levels; New accounts are split into three 24 hour periods, where their withdrawal limit increases by 5,000 USDT or equivalent per day, starting at 5,000 USDT. Following the new account restrictions, an account receives the “Basic Account” withdrawal limits of 50,000 USDT or equivalent per day. And lastly, for “Enhanced Accounts”, the limit is 500,000 USDT or equivalent per day. Note that the Enhanced Account’s limit requires both verification and 2FA to be enabled on the account.

Registration

Registering an account on Liqui is simple, and requires a username, email, and password. A confirmation email will be sent to you once you have completed the registration form. And after following the confirmation link in said email, you can begin to trade. Note that new accounts have withdrawal limits that are explained above.

Verification

Liqui has one verification level, the requirements for which are not published. Getting verified begins with a support ticket at their support site. Assume that for verification, the usual information is required. Namely a photo ID and proof of residence.

Interface

Liqui has a soft feel to its interface, which by default is a cool white with blue highlights. Liqui’s interface also offers a dark mode, which can be toggled with the lamp icon at the top of the page. The dark mode maintains the same highlights but trades the light background and dark text for a dark background with light text. Almost all of the interface switches seamlessly, with charts requiring a refresh. Some users may find the dark mode difficult to read, as the contrast between the text and the background is not very high.

On Liquis main trading page, there is a chart and summary front and centre, with buy and sell dialogues below. Further below is an area to select trading pairs, the current order book, trade history, and your personal trade history.

Security

Liqui offers decent security measures, including 2FA. When logging in to your account, without having 2FA configured, you are emailed a security code for that login. The security code is a massive 64 character string, making it safe from brute forcing in the 5 minutes which it works. Two Factor Authentication is offered via Google Authenticator and is simple to set up, using the standard ‘scan this QR code’ approach.

Otherwise, Liqui offers a complete overview of account login activity. Specifically, you can see all active sessions, with the ability to close them, and you can see all login activity, successful or otherwise. Both account information sections have the date, time, and IP address of the occurrence listed.

Coinfloor is a London UK, based cryptocurrency exchange that was founded in 2012. It offers 8 trading pairs, all of which are crypto/fiat. Coinfloor finds itself at number 21 on BlockExplorer’s list of the top 25 cryptocurrency exchanges of 2017.

Coinfloor is a good choice for any UK based trader looking to trade in some of the more well-known cryptocurrencies. Specifically, Coinfloor provides trading pairs for Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Ripple, and Litecoin. Coinfloor’s markets seem active, with XBT/EUR being the most active trading pair.

Coinfloor

coinfloor cryptoURL: coinfloor.co.uk
Launched: 2012
Trading pairs: 8
Deposit Fees: Yes, for fiat
Withdrawal Fees: Yes, for all
Trading fees: Yes
Verification: Yes, one level
Margin Trading: No

Registration

Registration on Coinfloor is broken up into three steps. Step one requires just an email address and password. Once you have completed step one, you must confirm your email via a link before proceeding to step two. Step two requires you to configure two-factor authentication, and step three requires you to go through Coinfloor’s verification system.

Verification

Coinfloor has a single verification level that is required to trade on the platform. Getting verified is a two-step process that requires a picture of your ID, your full name, your country of residence (including postal code). According to Coinfloor, the verification process should take about a minute for pre-verification in most cases.

Fees

Coinfloor’s trading fee system is broken up into three levels where each level is based on the amount you have traded over the past 30 days. On the low-end, the trading fee is 0.30% of your trading and applies for traders with less than $500,000 USD traded over 30 days. For mid-range, the fee is 0.20%, which applies for traders that have traded between $500,000 USD and $1,000,000 USD over the past 30 days. And on the high-end, for more than $1,000,000 USD traded, the fee applied is 0.10%.

Deposit and withdrawal wise, for cryptocurrencies, there is no deposit fee and there is a small withdrawal fee of 0.0050 of that currency, with a minimum deposit of 0.05 and a minimum withdrawal of 0.0005. Fiat wise, the fees are set per currency and can be seen on Coinfloor’s fee page. Minimum deposit and withdrawal for fiat are 5,000 and 2,000 respectively for every fiat currency that Coinfloor accepts.

Interface

Coinfloor’s trading interface leaves a bit to be desired, the entire site is built on a white and blue theme, with the occasional green accent. And unfortunately, there is no dark mode available, making late night trading sessions heavy on the eyes. The main trading interface has a market depth chart, but no other charts are offered. Below the chart on the left is an order book, with your personal orders filtered to the right. Directly to the right of the chart is an order submission form. And on top is a trading pair selection drop-down.

Security

While Coinfloor does enforce 2FA, there are unfortunately only two supported 2FA methods, and Google Authenticator isn’t one of them. The two choices you do have are Authy and YubiKey, with YubiKey being the star of the two, as it’s a hardware-based second factor. Otherwise, Coinfloor will email you on every login to your account.

On the corporate side, Coinfloor states that it maintains all of its client’s currency in multi-signature cold wallets. Also stated is that its entire system is regularly tested by penetration testers, though it does not state exactly who, aside from ‘a highly regarded penetration testing firm’.

coin renders

Use our news to inform cryptocurrency trading decisions, stay up-to-date on happenings in the industry, and more!

Wells Fargo Is The Latest Bank To Block Cryptocurrency Purchases On Credit
You can’t buy bitcoin with Wells Fargo credit cards anymore. Engadget reports, “Wells Fargo is pumping the brakes on customers using their credit cards to buy bitcoin — the bank has banned credit card cryptocurrency purchases. However, this isn’t a permanent measure, as Wells Fargo will monitor the crypto market and reassess the issue as needed”.

SEC Launches ICO Portal: Highlights Risks, Rewards, and Responsibilities
According to Tony Spilotro of BlockExplorer, “The United States Securities and Exchange Commission (SEC) is vehemently opposed to a common crowdfunding practice in the cryptocurrency industry called the initial coin offering (ICO). An ICO is similar to an initial public offering where a company or corporation raises investment capital by offering its stock to the public for the first time. Only in an ICO, a digital currency or token is distributed instead of a stock, and the token can have a variety of uses that blur the line of what defines a traditional security.”

Hackers Steal $20 Million Of Ethereum From Ethereum-based Apps and Mining Rigs
The Chinese cyber-security firm Qihoo 360 Netlab reported hackers stole over $20 million of Ethereum. BleepingComputer tells us, “The cause of these thefts is Ethereum software applications that have been configured to expose an RPC [Remote Procedure Call] interface on port 8545. The purpose of this interface is to provide access to a programmatic API that an approved third-party service or app can query and interact or retrieve data from the original Ethereum-based service —such as a mineror wallet application that users or companies have set up for mining or managing funds.”

Argo Blockchain to List on London Stock Exchange, Launches Subscription Crypto-mining
Argo Blockchain, a business that seeks to offer cryptocurrency-mining to the masses, announced its plans to list its shares on the London Stock Exchange. BlockExplorer’s Julia Travers shares with us that “the announcement coincided with the launch of Argo’s Mining as a Service, or MaaS, program, which will allow users to participate in mining through the Argo site with their home computers or smartphones.”